How Does a High-risk Merchant Account Differ from a Regular Account, And What Are its Advantage and Drawbacks?

 Did you even consider why high-risk businesses need a high-risk merchant account rather than a traditional one?

The simple answer is high-risk merchant account allows to acceptance of credit and debit card payments for high-risk businesses. With a traditional merchant account, running a high-risk business is impossible. Nowadays, having a high-risk merchant account is essential if you have a high-risk business because most customers want to make payments via credit or debit cards.

Here, we will cover what makes a business high-risk and how a high-risk merchant account differs from a regular merchant account. At last, we also learn some benefits and drawbacks of using a high-risk merchant account. So, let’s start.

What Makes a Business High-risk?

Nowadays, every business owner is familiar with what is a high-risk business and what is a low-risk business. But do you know why some business is considered high-risk business?

In the payment sector, no single framework decides which business is risky. Instead, each bank and financial service has criteria to decide which enterprises are labeled high-risk.

Many companies explicitly indicate that they don’t work with certain industries, whereas some may accept all the applicants. Payment service providers are generally pickier about the types of businesses they accept than merchant account providers. To open a merchant account, you should apply specific business information.

The finance company or the bank will decide about each application according to the internal standards. Generally, a company might consider the following risk factors –

Industries that might be considered high-risk-merchant-account are -:

• Adult products and services
• Age-restricted items
• Cigarettes and tobacco
• Credit Repair
• Dating services
• Highly regulated industries
• Nonprofits
• Online gaming and casino
• Travel agencies

Other Risk Factors

• Subscription-based industries
• High sales volume
• High transaction size
• International sales
• Higher Card does not present transactions
• No business experiences
• Poor credit score
• Past fraud

How Does a High-risk Merchant Account Differ From a Traditional Account?

For a high-risk business, it is essential to have a high-risk merchant account. A traditional account never works with high-risk enterprises. Traditional service providers never accept your application form for a traditional merchant account.

Many of you need clarification regarding the international merchant account and traditional account. To clarify your confusion, let’s check how a high-risk merchant account differs from a traditional one.

Higher Fees:

Generally, payment processing fees for any small or standard business might be 0.3%, whereas the fees for a high-risk merchant account are 1.5%. According to this rate, a standard company must pay $1.16 for a $50 charge, whereas a high-risk merchant must pay $1.76. But it may vary.

The Application Process is Lengthy:

For any standard business, the merchant account gets approved in minutes or less, whereas getting approved for high-risk merchant accounts will take multiple days. A business owner must share more details to approve the merchant account.

Increased Chargeback Fees:

High-risk businesses are susceptible to chargeback fees. These fees range from $20 to $100 for each chargeback, in addition to receiving the original transaction amount returns.

Needs For Cash Reserve:

The payment processor reserved some of the company’s cash as insurance. This cash reserve is generally used for the following –

Capped Reserved:

Until the balance reaches a certain amount, the payment processor withholds some percentage of each successful transaction. The contributions end at that point, and the reserve is kept on hand until needed.

Rolling Reserved:

Some percentage of every successful transaction will be reserved by the payment processor. For example – if your contract has a six-month rolling basis, you would receive the remaining amount from January to July, the balance from February to August, and so on.

Upfront Reserved:

The payment processor reserved some amount sent by the merchant. Sometimes, the payment processor reserves the full amount until the predetermined amount is reached.

Additional Technical Requirements:

The company selling age-restricted products needs this type of cash reserve. They need a tool to ensure you are not selling the product to underage customers.

What Benefits of Using a High-risk Merchant Account?

A merchant account has many limitations and boundaries but offers many benefits you never get with a traditional merchant account. High-risk merchant accounts offer several advantages if you can pay the extra fees. Let’s check what the benefits of using a high-risk merchant account are:

Offers you a Variety of Payment Acceptance Options

While making the payment via credit card to a low-risk merchant, only some forms of revenue are acceptable. With some limitations, high-risk merchant account offers:

• Recurring payments
• Manage higher sales volumes for launch events and promotional sales
• Provide various range of services and products.

Ability to Work Globally

With a merchant account, individuals can hassle-free expand their businesses worldwide and accept payment from different currencies. At the same time, low-risk merchant account does not provide the same offers.

There are many more advantages of using high-risk merchant accounts -:

• It offers you long-term growth opportunities.
• Help you to increase the profits of your business.
• Processing credit card transactions even if you have a bad credit score.
• Allow having multiple backup merchant accounts. The backup account offers an extra layer of security.

What is the Downside of Using a High-risk Merchant Account?

As you have seen, having a merchant account provides many benefits. On the other hand, it also has some downsides.

• The processing fees are higher compared to the normal account.
• Rolling reserved. Some fixed amounts will hold for 180 days.
• The potential mandatory reserve account. It can be high as 50% of the monthly volume.

Why Does High-risk Merchant Prefer us?

We WebPays is one of the most popular service providers. It helps the owner open a merchant account and offers a payment service solution at a reasonable rate. Many merchants love to work with us. The reason behind this is -:

• We offer a quick checkout process using different payment modes in different currencies. You can say that our services are available all over the world.
• Offer a high-speed withdrawal process.
• We offer 24*7 real-time reporting.
• Provide a high-level security service to protect your business from fraud.

So, if you are running high-risk businesses, you will appreciate our services. Expand your business globally with us and gain profit without any hassle.

Conclusion

Now you know that many reasons cause your business as a high-risk business. You need a merchant account to run your high-risk business successfully. If you set up a merchant account with a reliable payment solution, you will run your business without any headaches.

With a high-risk merchant account, you can get many benefits. There is also some drawback to using a merchant account, but it does not matter if you are gaining profits.

Most high-risk businesses love to work with WebPays as we offer many services at a reasonable rate. To learn more about our merchant account services, contact us.